Xerox, an Innovator Hit by Digital Revolution, Cedes Control to Fujifilm
Posted January 31, 2018 8:21 p.m. EST
Updated January 31, 2018 8:22 p.m. EST
When Xerox introduced its popular copying machines in 1959, their wizardry was considered as high tech as the iPhone when Steve Jobs presented it to the world almost 50 years later.
But just as Xerox made carbon paper obsolete, the iPhone, Google Docs and the cloud made Xerox a company of the past.
On Wednesday, Xerox said that, after 115 years as an independent business, it would combine operations with Fujifilm Holdings of Japan. The deal signaled the end of a company that was once an American corporate powerhouse.
“Xerox is the poster child for monopoly technology businesses that cannot make the transition to a new generation of technology,” said David B. Yoffie, a professor at the Harvard Business School.
The move offers a stark reminder that no matter how high a company may fly, it is still vulnerable to the next big breakthrough. Xerox joins once formidable tech companies like Kodak and BlackBerry that lost the innovation footrace.
Under the deal, Fujifilm will own just over 50 percent of the Xerox business. There are plans to cut $1.7 billion in costs in coming years. Fujifilm said it would cut its payroll by 10,000 workers worldwide.
How Xerox fell so far is a case study in what management experts call the “competency trap” — an organization becomes so good at one thing, it can’t learn to do anything new.
Xerox traces its origins to the founding in 1903 of the M.H. Kuhn Co. But it was an invention dreamed up in a makeshift Queens, New York, lab in the 1930s — a forerunner of the Silicon Valley garages used by the likes of Jobs — that changed Xerox’s trajectory.
That invention, by Chester Carlson, a patent lawyer, led to the creation of the modern copy machine. He even came up with a term for the process: “xerography.” In 1959, Xerox, which had won the right to explore the technology, offered the office copier that went mainstream. Soon, Xerox copying machines were a booming business and central to office life, a spot for informal conversations and gossip. In larger companies, “Xerox rooms” became a place to hang out.
High-end Xerox machines — essentially, complex paper-processing computers — became symbols of modern technology, sometimes getting the upper hand on hapless humans. In a classic scene from the 1980 movie “9 to 5,” a copier overwhelms an office newcomer played by Jane Fonda.
Its corporate name even became a verb.
During the good times, Xerox invested in new technology. In the 1970s, it set up a research center in Palo Alto, California, far away from its East Coast headquarters. Its goal was to invent the office technology of the future.
The technologists at the lab, the Xerox Palo Alto Research Center, did not invent the computer mouse and graphical-user interface. But they refined them and built a usable prototype personal computer, the Alto. More than 1,000 Altos were made and put to work, including a few in Jimmy Carter’s White House. In 1979, in a visit that is the stuff of business legend, Jobs toured the lab. Later, the ideas he saw there found their way into the Apple Macintosh.
Over the years, Apple has had its own ups and downs. But whenever Jobs became convinced that something new was afoot, he moved forcefully and refocused the company. He did not fall into the competency trap, and today Apple is the most valuable corporation in the world.
At Xerox, when the corporate managers took over its personal computer project and tried to commercialize the Alto, named the Xerox Star, they priced it at more than $16,000. It flopped.
The Xerox Star was priced more like a copier, an expensive office machine, rather than a personal computer. In 1981, the same year the Star came to market, IBM introduced its PC for business, pricing it at less than $1,600. Three years later, the Apple Macintosh sold for about $2,500. In the 1980s, with the patents on its copier technology expiring, Xerox faced stiff competition from lower-cost Japanese competitors like Canon and Ricoh. With its business under pressure, Xerox dabbled in financial services. It bought a casualty insurer, Crum & Forster, and an investment management firm, Van Kampen Merritt.
The move into financial services ran into trouble, and the company sold it all off in the 1990s.
Since then, Xerox has struggled with the rise of email and the move by offices around the world to send and share documents electronically. Less paper and fewer copies undermined the company’s once lucrative franchise.
In recent years, Xerox moved to recast itself more as a business services supplier, helping companies streamline their flow of documents and work in fields like health care, human resources and financial compliance. It won some high-profile contracts — like operating the computer and payment systems behind E-ZPass highway tolls.
Yet none of its efforts delivered a sizable profit maker to make up for its declining copier business. Carl C. Icahn, the activist shareholder, pushed the company to go further.
“We believe Xerox still has potential, but it will go the way of Kodak if there aren’t major changes,” Icahn said in December.
The company’s leaders saw the problem. “The world is changing,” Ursula Burns, then chief executive, said in an interview with NPR in 2012. “And as that world changes, if you don’t transform your company, you’re stuck.”
Xerox never managed to get ahead of the digital wave to enjoy anything like its former prosperity.
Under the deal announced Wednesday, Xerox, of Norwalk, Connecticut, will become part of an existing Fuji Xerox joint venture, which sells office products and services in the Asia-Pacific region. As part of the deal, it will issue a combined $2.5 billion in cash dividends to its shareholders.
The combined company is expected to have $18 billion in annual revenue and will continue to trade on the New York Stock Exchange under Xerox’s ticker symbol, XRX.
“I am confident that Fujifilm’s ability to drive change as well as its experience of successful reinvention will give a competitive edge to the new Fuji Xerox,” Shigetaka Komori, chairman and chief executive officer of Fujifilm, said in a written statement.
Fujifilm still makes film, but it has branched out considerably, using its chemical and imaging technology in products as varied as ingredients in cosmetics and medical equipment.
Still, Fujifilm said on Wednesday that there were challenges ahead. The company reduced its expectations for operating income by nearly 30 percent in an earnings forecast. It warned that the environment for its Fuji Xerox venture was “increasingly severe” and said that “a fundamental structural reform will be implemented.”
Xerox’s shares, which have been mostly flat in recent years despite a broad run-up in the stock market, rose about 12 percent over the past month in anticipation of a deal.
The joint venture with Fuji, begun in the early 1960s, has been a bright spot for Xerox, said Ben Gomes-Casseres, a professor at the Brandeis International Business School.
Initially the stronger partner, Xerox has benefited from shared technology and know-how from its Japanese partner. The merger, Gomes-Casseres said, is probably the best path ahead for Xerox.
“They could have failed years ago without Fuji,” he said.